The state of Pennsylvania will not renew its services contract with IBM regarding the development of a modernized unemployment compensation system, after the project reportedly has gone 42 months behind schedule and US$60 million over budget.

In August, state officials commissioned a study from Carnegie Mellon University's Software Engineering Institute, seeking "to determine the best course of action moving forward," according to a statement released this week by Department of Labor and Industry Secretary Julia Hearthway's office.

"The bottom line is that the problems we've identified cannot be solved and we will not renew our contract with IBM," Hearthway said in the statement. "The level of risk, combined with the critical nature of the system, demands that the Department of Labor & Industry has a system that produces timely decisions reliably and accurately."

IBM landed the contract in June 2006. The project was originally budgeted at $106.9 million but the state has so far "dedicated funds approaching $170M," according to the Carnegie Mellon study.

By early 2011, "a number of program risks and issues were identified" but the project had already experienced significant cost overruns "without any measurable solutions," Hearthway's office said.

"We are surprised by today's announcement," IBM spokesman Scott Cook said via email Thursday. "This decision is based on a third-party report that we had not seen at the time of the Commonwealth's announcement, despite repeated requests to the Department of Labor and Industry to review it together."

"In complex information technology implementations, there is accountability on both sides for system performance and service delivery," Cook added.

Indeed, the Carnegie Mellon study singled out state officials for criticism on a number of fronts. For example, the original solicitation for the project had "major weaknesses," including a "lack of detailed and object source selection criteria" and "unprioritized and often ambiguous requirements," according to the study.

State officials also failed to delegate project roles, leading to a situation "in which no one in [the Department of Labor and Industry] was accountable and responsible for the administration of the program."

There may be political overtones to the situation. Hearthway's announcement noted that she took office in April 2011 and her office "began to aggressively manage the system and work with IBM to take corrective actions."

The Carnegie Mellon report also praises DLI's current senior leadership for taking a "hands-on and aggressive" approach to managing the project.

Meanwhile, IBM contributed to the project's problems as well, according to the report. "Another concern has been instability in [IBM's] workforce," it states.

After some design documents were finished in 2008, IBM took a large number of business analysts that had become the "memory" of the state's business requirements, off of the project: "This decision created a significant knowledge gap as the program entered the critical application design and development phases.

Staffing changes weren't confined to the business analysts. In fact, since the project's start 638 IBM contractors have worked on it, "with the majority of the workforce having less than one year on the project and 75 percent having less than two years," the report states.

Carnegie Mellon's study recommends that state officials build an improved governance structure for the project, and also that work on the third release of the software be halted in favor of stabilizing previous releases.